TORONTO - If it feels like you are paying more for and getting less from your extended health insurance, you are not mistaken. A new analysis shows that the gap between premiums paid in and benefits paid out has widened substantially in the past 20 years in the for-profit sector of the industry.

In 2011, health insurers which operate on a for-profit basis retained $6.8 billion of the premiums they collected. In 1991, the amount was $1.2 billion. (Those figures were adjusted for inflation.)

The discrepancy is highest in plans offered to small business owners and individuals who buy their own health insurance — in other words, the people without the clout or expertise to wrest the best deal from their health insurer.

"If you're running a five-person shop, and your insurance premiums are going up at a great rate, chances are you're not going to know a whole lot about health insurance. And you're going to be in real trouble negotiating against a huge insurer when it comes to the premiums," said Michael Law, lead author of the analysis, which was published Monday in the Canadian Medical Association Journal.

"I've talked to lots of small business owners about their experiences in benefits. And the consistent message that I hear from people is that most costs to a small employer of running their businesses go up maybe one to two per cent every year — except for benefits, which go up five, 10, 15 depending on what your plan experiences in any given year."

Law and his co-authors said the industry needs more regulation, with rules aimed at creating transparency and perhaps even limiting the proportion of premiums companies are allowed to retain. Or, they argued, governments could replace private extended health insurance with public drug and dental plans.

The analysis only covers for-profit health insurers, which make up about 80 per cent of the Canadian market. There were simply no data available for the not-for-profit companies, said Law, an assistant professor at the University of British Columbia's Centre for Health Services and Policy Research.

Law and his co-authors based their analysis on industry data drawn from the annual reports of the Canadian Life and Health Insurance Association. They twice asked the association for additional information; the first request was refused and the second drew no response.

The organization was quick to issue a rebuttal to the journal article Monday. It called the report "misleading" because it did not factor in the not-for-profit sector and for including things like disability insurance, which are not health-care expenses but which are typically part of supplemental benefit packages employers purchase for their workers.

"Long-term disability and all other forms of income replacement are not health insurance and are not subject to the same cost-driver trends as true health-care insurance," Stephen Frank, vice-president for policy development and health, said in an emailed response to questions.

"Generally, due to the complexity and costs of income replacement solutions, the margins are higher."

Law said he and his co-authors had no option but to include these kinds of benefits in the analysis, because the Canadian Life and Health Insurance Association annual reports list them as health benefits. "They do not publish further breakdowns by the different types of benefits provided, so we could not analyze them separately," he said.

Frank acknowledged the for-profit sector's gap between premiums and benefits cited in the paper was correct. When asked why for-profit insurers need to keep such a big portion of the premiums paid to them, he pointed to market volatility and the complexity of operating over 13 provincial and territorial jurisdictions.

"The market in Canada is increasingly risky from a financial perspective and is also becoming more and more complex to manage within. In an insured plan, the employer is paying for the risk of any unforeseen spike in costs that would be borne by the insurer (i.e., this is true insurance)," Frank said.

Law said he cannot tell from publicly available data whether the extra money insurers are retaining is going to higher dividends for shareholders or higher administrative costs. But his paper noted that the gap between premiums and benefits has grown only marginally for plans held by large companies which self-insure. In those programs, the employer pays any benefits claimed; the health plan company they contract with simply administers the plan.

As well, the gap between premiums collected and benefits paid really started to widen after 1997, when changes in legislation allowed major mutual companies — in essence, insurance co-operatives — to transition to for-profit companies owned by shareholders.

"There's little question in my mind that this market is not functioning well for small employers and individuals," said Law.

Health economist Steven Lewis agreed.

"If you set insurance up as a for-profit business, don't expect the insurers to behave in any other way than as a profit maximizer," Lewis said. "That's the name of the game."

Lewis, who has a consulting firm in Saskatoon, called the paper important and said it should garner the attention of policy makers, employers and individuals. He suggested it provides ammunition for the argument that medicare should be extended to cover things like drugs and dental care.

"I think it's increasingly clear that if you want the best value for money, you're probably going to get it in a single payer public system for just about any service," he said.

Lewis noted that people who will argue the country cannot afford it may not be factoring into their calculations the billions that could be saved if employers and employees no longer needed to buy extended health programs, or the billions the companies offering those extended health programs are retaining.